Liquidity dry-up leads to an under subscription of February Treasury bonds

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There was a 16.3 percent under subscription of February’s treasury bond sale due to tighter liquidity and medium tenor papers saturation in the market.

The Central Bank of Kenya (CBK) acquired Sh41.86 billion bids out of an Sh50 billion target for the dual-tranche bond that comprised of a 15-year paper first that was sold in 2013 and a 20-year paper that was sold initially in 2012.

Therefore, the effective tenor for the 15-year and 20-year papers is 7.1 years and 11.8 years, respectively.

The Central Bank of Kenya initiated Sh32.12 billion 11.25 percent and 12 percent for the two bonds respectively.

“The CBK has reopened a lot of bonds with a maturity profile of about seven to eight years resulting in a perceived oversupply of the tenors. This has left little room for capital appreciation, making these tenors unpopular with investors, and we believe this to be the reason for under subscription of the bonds,” said Sterling Capital in a note on the bond results.

Initially, the bond aimed to support the budget, however, part of the proceeds earned will be utilized to retire an Sh7.87 billion debt from an infrastructure bond that was traded in 2009.

The liquidity mop-up effect of the January 16-year infrastructure bond sale, which saw investors bid a record Sh125.3 billion whereby the government took up Sh81 billion from, had an impact on the under subscription.

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Anthony Kiratu is the Founder of Finsolutions. He is a financial analyst with over 5 years experience in research, investment advisory, valuation and financial modelling. Anthony is a member of the Institute of Certified Investment and Financial Analysts and Institute of Certified Public Accountants of Kenya. He is passionate about development of African Capital Markets through training of investors and dissemination of information for sound financial and investment decision making process. He is also a part-time lecturer in the Certified Investment and Financial Analyst course in the subjects of International Finance, Portfolio Management, Equity Investment Analysis, and Fixed Income Securities. Email: anthony@finsolutions.co.ke Contact: +254 780216631

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